According to several insiders, U.S. banking regulators have been actively engaging with regional banks to assess any potential repercussions stemming from the recent financial challenges faced by New York Community Bancorp. In the wake of NYCB’s disappointing financial results and its decision to reduce its dividend on January 31, officials from the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp, and state regulatory agencies initiated discussions with these banks.
The dialogues, as recounted by two bank executives, a legal expert, and an industry informant, focused on evaluating the banks’ liquidity positions and examining if there were any notable shifts in deposit flows or customer concerns.
Despite these inquiries, the bank leaders reported no significant anomalies in their operations, with one indicating that the interactions served more as a verification of the regulators’ existing knowledge.
These regulatory actions underscore the ongoing apprehension regarding the stability of smaller banks, especially in the aftermath of the collapse of Silicon Valley Bank and other mid-sized institutions last year, which raised alarms over the health of regional banking entities.
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NYCB’s unexpected loss reported in late January, accompanied by a $552 million allocation for credit losses primarily directed towards its commercial real estate (CRE) loans, has further spotlighted the issue.
According to Apollo’s research, small banks hold almost 70% of all CRE loans, a sector that has seen increased pressure due to sustained vacancies in office spaces post-pandemic.
Banks such as Valley National Bancorp, Axos Bank, WaFd, and Bank OZK, known for their significant involvement in CRE lending, have come under closer scrutiny. WaFd Bank, for instance, acknowledged that its CRE loan concentration was a key area of interest for regulators during its recent merger application with Luther Burbank Savings, which was approved on January 30.
Ira Robbins, CEO of Valley National Bank, expressed confidence in their CRE loan portfolio’s diversity and granularity, emphasising the value of ongoing communication with regulatory bodies.
